How To Come Up With Good Business Ideas
Many people would love to start their own business but are held back by the belief that they’re not creative enough to come up with a good idea. Those that do launch a project often go with the first idea they have, only later realising they should have taken more time to find the right opportunity.
If you want to build a successful business, this article will give you a better chance of finding that killer idea. First, I’ll outline techniques for generating ideas, then I’ll explain what exactly you should be looking for.
“Notice”, don’t “think up”
The typical advice you’ll see for finding business ideas is to write down your strengths and your interests, then come up with ideas that merge the two. This approach might work for some, but it’s flawed. It doesn’t focus your mind on finding real problems; it limits your thinking to things that interest you; and it demands that you come up with ideas on the spot without inspiration from the outside world.
According to Paul Graham, Co-Founder of the influential startup accelerator, Y Combinator, the verb you want to be using with respect to business ideas is not “think up”, but “notice”. He’s found that the most successful startups almost always come from the founders observing something in their daily life.
A good place to start is trying to notice problems at the company you work for. Could the internal processes be improved? Are customers dissatisfied with something?
Another approach worth testing is to think about products and services that you use. You might be unhappy with a company and be able to compete with them by addressing their shortcomings. The idea for the language tutoring platform I founded in 2017 came to me whilst I was taking lessons online.
As well as utilising your personal experiences, listen to your friends and family. You won’t need to quiz them on their problems as people like to moan and complain about the negatives in their life.
Alternatively, you could take a more structured approach to coming up with business ideas. Alex Hillman & Amy Hoy teach an entrepreneurship course called 30 x 500, where they recommend the following approach: pick a specific group that uses the internet a lot, for example digital nomads. Then find where they hang out online, observe their discussions, and research the themes they discuss in order to uncover their problems.
Seek new experiences & be patient
To increase your chances of noticing things, actively seek out new experiences and environments. Moving to another country is one way to stimulate ideas. When I moved to Paris a few years ago, I noticed that tea had become big business as brands had turned the drink into something fun, luxurious and fashionable. I considered launching something similar in the UK, where the trend has since caught on.
Whilst changing your environment can help, the only thing you really need to change to start spotting opportunities is your mindset. If you focus on noticing problems and pondering whether they could be solved, ideas should surface. This will not happen immediately, so be patient and allow yourself time to come across situations where opportunities exist.
Before you start searching, you should understand what makes a good business idea. You’ll see that it’s not black and white — much can depend on personal factors.
Solve a problem that actually exists
This sounds obvious, but entrepreneurs repeatedly build things that no one wants. This happens because they begin by looking for solutions, rather than problems. Paul Graham highlights that these ideas often sound plausible. He gives a social network for pet owners as an example — people don’t want to use it themselves, but they could imagine other people wanting it. Entrepreneurs should not interpret such feedback as evidence that there is demand for their idea.
Find a group that cares enough about the problem
Even if you’ve found a problem, it may seem insignificant to others. You need to discover whether the problem is sufficiently important and urgent to enough people. This will determine whether they have the required motivation to purchase and use your solution. If you can find a group of people who urgently want your product even when it’s still a work in progress, you’re probably on the right track.
To give you an example, a friend of mine recently launched a software tool that pauses your Google advertising automatically if your website goes down. The problem was obvious to him — business owners can waste a lot of money on advertising when their site is down. But whilst they recognised that the problem existed, it wasn’t urgent or important to them. They felt that downtime was so rare that it wasn’t worth worrying about.
Leverage your personal experience
According to serial entrepreneur, James Altucher, you should:
“Only build something you really want to use yourself. There’s got to be one thing you are completely desperate for and no matter where you look you can’t find it. Nobody has invented it yet. So, there you go — you invent it”.
This advice — to focus on problems you personally have — can be seen all over the internet. It makes some sense as it reduces the risk of creating a solution for a problem that doesn’t exist. It also helps you understand your customers, which is important when designing and selling your product. If you’re a 50-year-old accountant thinking about launching a mobile app for teenagers, you’d better do some serious research to make sure that you’re addressing a real need.
Whilst personal problems are a good place to start, don’t limit yourself to them. Focusing only on personal problems needlessly eliminates things that matter to others. Plus, if you’re male and between 25 and 50 years old, the online entrepreneur community is dominated by folks like you with similar lifestyles, all trying to solve similar problems. Focus on other demographics such as the elderly and you’ll increase your chances of finding unresolved problems.
Business schools teach that to start a business, you need a USP (Unique Selling Proposition). This term tends to mislead people, causing them to attempt to think of something completely unique. This is no easy feat.
If your product is unique, it will attract attention and you may be able to acquire customers for free through word of mouth. But a product does not need to be unique to be successful. It simply needs to deliver enough value for people to be willing to buy it.
You’ll have a far better chance of making money if you focus on problems that companies are already addressing. This approach removes the risk of picking an insignificant problem.
Rather than look for something completely new, think about goods and services you use and consider subtle ways that you could do things differently. Here’s an example to illustrate this:
The market for email marketing software is extremely crowded. But it didn’t stop brothers Jonathan and Gareth Bull from creating a highly profitable product — EmailOctopus. They integrated with Amazon Web Services in order to offer software that was significantly cheaper than the competition. And as they didn’t have investors, they were forced to create a simpler product. It turned out that this simplicity was just as important as price in attracting customers.
Whilst EmailOctopus’ points of differentiation were centred on the product, note that you can also differentiate in other areas. You could do better marketing than the competition, you could bring something you’ve seen in one country to another, or you could simply communicate better with customers.
Do you have the skills and resources to turn your idea into a profitable business? If you don’t have them, can you learn them or acquire them without too much difficulty?
When I was at university, I had the idea for a fridge gadget that would scan food for expiry dates and provide reminders, thereby reducing waste. Whilst the idea interested a supermarket, it was far too technically challenging for a Business student. Sometimes your ideas will be too ambitious, and you’ll need to be more realistic.
Business gurus often advise you to follow your passion. You might love tennis. But you love playing the game, not selling tennis products online. Most online businesses will involve similar work — marketing, finding suppliers, recruitment etc. Whether you enjoy running a business will depend on whether you suit being an entrepreneur, not whether it’s related to your interests.
Boring ideas attract less attention, so there will be a higher chance of finding gaps in the market if you stop limiting your thinking to things you’re passionate about.
What matters more than your passions is what lifestyle you want to have. If you want to get investors and make millions, be prepared to work long hours under intense pressure. If you want a lifestyle business, focus on an idea that you can execute on your own, then use technology to automate processes.
Tight targeting makes things easier
If you’re seeking investment for an idea, you’ll need to persuade investors that the market you’re targeting is big enough to generate a good ROI. The problem is that when you go for a big, broad market, it’s harder to break through the noise and reach potential buyers. A friend of mine co-founded a social network for finding suppliers and building business partnerships anywhere in the world. The targeting was so broad that the company struggled to acquire users.
Thanks to the internet and cloud computing, it’s now easier than ever to bootstrap an online business, i.e. start it with no outside investment. If you do this, you can own 100% of the shares and the market does not need to be particularly big for you to make a living. Targeting a niche will enable you to tailor your message to people with a specific need. This makes sense as Google allows people to search very specifically. Pat Flynn gives this example:
“if you’re looking for the best dog food for your golden retriever, are you typing in “best pet food”? No, you’re typing in best dog food, and likely best dog food for your golden retriever of a specific age…The narrower you get the easier it is to connect with your audience, the easier it is to stand out.”
How much risk are you comfortable with?
Starting a business can be scary because of the risks involved. What if you lose all the money you invested and can’t find a new job? I wouldn’t advise anyone to quit their job unless they have the funds to cover them if the business doesn’t work out. If you pick an idea that can be brought to life with little time and money, you can start it as a side-project that you work on during your free time. This will also reduce stress as you won’t need to worry about the project failing. Whilst in general you’ll want to minimise risk, there’s a trade-off here as simple products can be copied more easily than those which require significant time and capital.
Customer lifetime value vs customer acquisition costs
You may have a phenomenal product. But it means nothing if you can’t gain customers at a cost that makes sense.
Entrepreneurs sometimes say it’s easier to start a business that sells to companies rather than consumers. The thinking is that it’s much easier to sell a $1000 product to a few business customers than it is to sell a $10 product to hundreds of consumers. Whilst this may be true, don’t let it restrict your thinking. There are millions of profitable businesses that make just a few dollars per sale.
Still, you should consider customer lifetime value — how much profit do you expect to generate from each customer during their lifetime? If the figure is high, you’ll have a greater ability to invest in customer acquisition and be left with a decent profit. Software businesses are favourable because they typically generate recurring revenue — customers pay every month or year. If your idea instead fits a one-off purchase, you may still be able to increase lifetime value by maintaining a relationship with your audience and selling related products to them.
If you’ve previously struggled to come up with good business ideas, I hope that this guide has shown you that you don’t need to be a creative genius. You simply need to be curious and observe when problems crop up. When you do find an idea, make sure it solves a pressing problem and think carefully about whether it’s a good fit for you.
Already have an idea and wondering if there's a market for it? Check out this post.